Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Possible causes of decreasing wage ratio. How to overcome the phenomenon? László György, PhD Assistant Professor Budapest University of Technology and Economics Chief Economist Századvég Economic Research Institute Ltd. 1 Structure 1. Trends 2. Causes 3. Policy solutions 4. The case of Hungary 2 Trends Productivity – real wage gap (US) 3 Source: Ameco -26 -25 -25 Greece Ireland -16 Japan -10 -11 Portugal Finland -5 -5 -6 -6 -7 -7 -7 -8 Italy Austria Norway UK Spain Australia Canada -11 United States -3 -4 EU15 -2 France -6 Sweden -1 Germany -1 Denmark 5 Netherlands 4 Luxemburg Belgium Change in wage share, percentage points (1960-2015) Trends 3 1 -13 -15 -21 4 Ireland Slovakia Romania Macedonia Hungary Lithuania Czech Republic Poland Malta Latvia Greece Sweden Cyprus Norway Luxemburg Portugal Estonia Italy Spain EU Austria Bulgaria Eurozone UK Finland Croatia Germany Denmark France Netherlands Iceland Belgium Slovenia Switzerland Trends Current situation in the EU (%, 2015) 70 67 65 60 55 50 45 45 45 45 Source: Ameco 47 47 47 48 49 51 50 50 50 50 51 51 53 53 54 56 56 56 56 56 56 56 57 57 58 59 59 60 61 41 40 5 Causes Roots and causes of decreasing wage share Structural changes between sectors Technology Globalization Institutional changes Decreasing bargaining power 6 Causes Structural changes between sectors Source: http://112.international/ • Most of the fall in the labour share was the result of falling shares within industries (ILO, 2010); 7 Causes Technology Source: www.yourmobilephonereviews.co.uk • Using less labor and more capital, and develop new labor-saving technologies (OECD, 2012, 2015; Karabarbounis and Neiman, 2014; Bentolila and Saint-Paul, 2003 and more…) • Still there are unanswered questions: why countries that are relatively similar from a technological point of view differ in the scope of the decline? 8 Causes Globalization – trade and production • Wage share (%) • Production and trade: pressure on wages, significant negative effect (Stockhammer, 2012; OECD, 2015) Wage share and trade openness in Europe (1995-2015): 80 75 70 65 60 55 50 45 40 y = -0.0273x + 56.743 0 100 200 300 400 Trade openness (% of GDP) Source: Ameco, World Bank 9 Causes Globalization – capital liberalization, financialization • Financial markets: influence businesses to increase shareholder value (OECD, 2015) leads to Short term focus instead of long term sustainability • Lee and Jayadev (2005): – capital account liberalization reforms increase inequality – little evidence that capital account liberalization can spur growth 10 Source: http://blogs.strategygroup.net Causes Globalization – structural differences between developed and developing GDP-GNDI gap for Hungary 1956-2012 GDP 6-7% Gap! GNDI 11 Causes Institutional changes – consequence of globalization(?) • Labor market institutions –E.g. trade union density and coverage () • Government presence and ownership in the economy () • Size of the welfare state () –Minimum wage () –Unemployment benefits () • Fiscal consolidation in 17 OECD countries over the period 1978-2009 had distributional effects by raising inequality and decreasing labour income shares (Ball et al., 2013) 12 Causes In numbers (Stockhammer, 2012) • 71 countries (28 advanced and 43 developing and emerging economies) from 1970 to 2007 • Question: What caused the 9,4 percentage points average decrease? • Result of the fixed effect model for the advanced countries • Contributions to the change in the wage share for advanced countries, 1980/84 -2000/4: Financialization Welfare state Globalization 0 -0.7 -0.5 -1.5 -1.9 -2 35% Welfare state Globalization 7% 14% -2.5 -3.5 23% -1.3 -1 -3 Financialization Technology Technology 20% -3.3 Other 13 Solutions Policy tools to increase labor share • Labor market institutions – Employment protection – Widening of trade union coverage and increasing density • Social transfers – Pushing up minimum wage • Increasing employment and activity rates • Government involvement in the economy – Government consumption – State ownership in Critical Infrastructure • Tax policy – Redistribution of wealth from oligopolists towards labor • International cooperation – Internationalization of labor unions – Mitigate ‘race to the bottom’ – tax cooperation, eliminating offshore states • Competitive exports – From the end to the beginning of the value chain with R&D – High added value less price sensitivity less wage competition 14 Hungary Case of Hungary: 1970-2010 7000 Employment: -30% 600000 500000 4000 400000 3000 300000 2000 HUF 5000 Net real wage total: +28% 1000 200000 100000 0 0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Thousand 6000 700000 Number of employed Real GDP/employed/month (right axis)) Net real wage/employed/month (right axis) 15 Hungary The Hungarian attempt: 2010Income redistribution from large global to small local players Large monopolist and oligopolist players (utilities, financial, retail, more telco) than 2% of GDP Overhead cost reduction • Employment protection: Job Protection Action Plan • Increasing employment rate (9%) (560 000 increase in employment) • Minimum wage increase (real terms: 14% increase) • Tax policy – Redistribution of wealth from oligopolists towards laborers and families: (real terms: 10% increase) Additional 4,3% real wage increase for 16 average families Hungary Marginal tax wedge at average wage 71% 49% Source: own editing based on OECD data 17 Closing remarks Methodology • Focus on net real wage not on gross wage ratio • Focus on net real wage/GNDI (not GDP) Practice • (2%), be brave: tax oligpolist and monopolist capital; and decrease tax wedge • (4%), increase employment, decrease inactivity • (2%), eliminate the discontents of globalization, above all offshore (BEPS) • build your own high value added economy (close the GDP/GNDI gap) 18 Thank you for your attention! László György, PhD Budapest University of Technology and Economics 19 References • • • • • • • • • Lavoie, M.-Stockhammer, E. (2012): Wage-led growth: concept, theories and policies. Conditions of Work and Employment Branch. ILO, Geneva. OECD (2015): The Labour Share in G20 Economies. International Labour Organization. Organisation for Economic Co-operation and Development with contributions from International Monetary Fund and World Bank Group. Report prepared for the G20 Employment Working Group Antalya, Turkey, 26-27 February. Kristal, T. (2010): Good Times, Bad Times: Postwar Labor’s Share of National Income in Capitalist Democracies. American Sociological Review. 75(5) pp. 729–763. György, László: Offshore – van megoldás. 2016. május 27. http://mozgasterblog.hu/blog/offshore_van_megoldas Lee, K. – Jayadev A. (2005): Capital Account Liberalization, Growth and the Labor Share of Income: Reviewing and Extending the Cross-country Evidence. In: G. Epstein (ed.): Capital Flight and Capital Controls in Developing Countries. Cheltenham, Edward Elgar, pp. 1-50. Bentolila, S.-Saint-Paul, G. (2003): ‘‘Explaining Movements in the Labor Share.’’ Contributions to Macroeconomics 3: Article 9. Ball, L., Furceri, D., Leigh, D., and Loungani, P. (2013): The distributional effects of fiscal consolidation. IMF Working Paper, Washington. International Labour Office (2010): Global Wage Report 2010/11: Wage policies in times of crisis (Geneva). Organisation for Economic Co-operation and Development (2012): Employment Outlook 2012 (Paris). 20